As the Asian population gets richer, older and wiser, business for Asian insurers continues to burgeon. With a rapidly growing middle class, increased wealth generates the need to protect property, possessions and businesses. As the Asian population lives longer, the demand for health insurance products grows, and with a wiser and more discerning population, comes the need for a much broader range of new, more sophisticated insurance products and innovative (including digital) sales channels.
Asia’s growing insurance markets
According to the Boston Consulting Group, the Asian region’s middle class is expected to balloon from 525 million in 2009 to 3.2 billion by 2030. Household wealth will more than double over the coming decade from US$81 trillion today to $174 trillion by 2025.
By comparison, in 2013, premiums in Asia grew by 7.3% compared to 1.4% in Europe and a decline in North America (See chart below).
Yet sadly, Asia remains underinsured. Whilst Western countries spent around 7-8% of GDP on insurance, Asian countries (excluding Japan) only spent 3% on average in 2013.
The traditional cultural obstacle towards insurance appears to be reducing, as consumers become increasingly aware of the benefits of insurance, particularly following recent regional disasters and improved internet literacy. Add to this the opportunities for insurers, with the impending launch of the ASEAN Economic Community (AEC) to increase their business by accessing new markets in different geographies within the ASEAN region.
So let’s all agree that the Asian market is clearly in growth mode.
Insurer’s costs
As you well know, the two most significant costs to an insurer are claims and administration.
• Rising claim costs
Claims singularly represent the largest cost to insurers by far.
According to one PwC report, up to 80% of all premiums are spent on claims’ payments. By keeping these costs under control, an insurer can price competitively without sacrificing margins.
Currently, many insurers are not accurately assessing their claims management performance because they lack the necessary analytic tools. Claims leakage and the use of “average claims cost” is widespread, but it often disguises important trends.
Without sufficient controls on liability and claims costs, insurers can pay way too much to service providers, or unknowingly make payments for fraudulent claims. Gaining more granular visibility and control over claims can significantly reduce an insurer’s costs.
• Rising admin costs
The second largest cost impact for an insurer is in their administration. This includes costs associated with operating staff, branch offices, marketing activities and distribution channels that are typically associated with generating new business and maintaining policies.
Many insurers still handle their workloads manually and remain heavily paper-based. If they want to reduce costs and improve operational efficiency without compromising data integrity, especially in a growing market place, they cannot rely on manual processing.
The interaction of an insurer with its agents and clients all comes down to content: product information, application forms, policy statements, adjuster reports, invoices, and other manners of correspondence. Moving all of these documents off paper and into an electronic format has been an industry focus since computers started showing up as desktops.
It is not just about reducing printing and mailing costs; it is also about creating easier, less error-prone ways of interacting through digitisation.
Managing costs and improving profitability
So how can an insurer meet these significant growth demands and achieve their strategic business goals, whilst lowering their associated rising costs and improving profitability at the same time? In two words: “Automation” and “Analytics”.
For claims, if an insurer has the software toolset to automate and streamline its claims process, with an analytics toolset to monitor the granular performance and costs of their service providers/repairers, whilst improving their interaction with both the service provider and customer electronically, then the insurer could reduce its claims costs significantly.
| If these tools reduce the insurer’s overall claims costs by only 1%, then typically the cost to acquire the associated software could be recovered within the first year of benefits. What if the insurer could reduce their overall claims costs by say 2% to 5% or more? Then they would be improving profitability in a growing market within the first year. Imagine the achievable savings over five or more years. |
Similarly for administration costs, if an insurer has the software toolset to automate, streamline and digitise its new business and policy administration processes, it too can reduce the costs and errors typically associated with manual administration or to support an extensive branch network.
Insurers continue to use technology to reduce costs, improve speed to market for new products and expand distribution channels. They are also increasing their use of digital technologies and data analysis. Celent research shows that many insurers are using technology to improve market share and meet the demands of producers, prospects, and policyholders.
Workflow automation
Insurers should look to drive out costs by working smarter.
For claims, the focus is not only on providing a comprehensive, digitised First-Notification-of-Loss experience for the claimants but also multi-streaming a claim into its components, providing automated reserving as well as granular supplier chain and repairer management.
For policy administration, the focus is on automation at each level of the insurance value chain, not only to improve their operational efficiency, but also to bring value to customers.
Analytics
From a claims perspective, according to one PwC report, analytics can provide greater understanding of the true drivers of costs, enabling insurers to not only monitor their costs, but also predict the risk of a large payout for a claim.
Insurers are also failing to exploit the talent at their disposal, viewing the claims department simply as a back-office, transaction-based function. By gaining a better understanding of the risks and costs of claims and prioritising accordingly, claims professionals will be free to take on a more strategic role, focusing on higher-value work.
According to a 2015 Celent report, insurers across all regions are investing in data analytics and modelling techniques to improve the way they segment markets, identify risks, target profitable business and reduce claims.
They are also investing in technology solutions to optimise processes, increase collaboration across the enterprise, and demonstrate capital adequacy and financial solvency for regulatory compliance purposes.
Analytics applications enable insurers to get a complete view of overall business operations, identify cost saving areas, find revenue generation opportunities, recognise poorly designed processes and optimise the overall process, and understand customers more effectively in order to capture greater value.
Some insurers are beginning to apply predictive analytics to their claims processes and decision-making, as well as underwriting, to make more accurate decisions.
What can you do about it?
Insurers need to be vigilant and consciously aware of the benefits on offer from the new and innovative software solutions currently available in Asia. Investing in these new generation tools could provide insurers with a significant competitive advantage, not only in providing a digital platform to automate and enhance the customer experience en mass, but also support significant growth, reduce cost ratios and improve profitability.
At Innovation Group, a global supplier of insurance solutions and services, we have invested more than $80 million to deliver an award-winning “future ready” core insurance application suite comprising of three functionally rich modules namely policy, claims and analytics. For more information please contact TechSales@au.innovation-group.com.
Mr Toby Rotstein is Regional Director, Sales, Asia Pacific, at Innovation Group.